Empire Business: HK Organization’s Harry Kotowitz and Howard Klaus
Harry Kotowitz and Howard Klaus are the new names in Dumbo real estate thanks to Empire Stores
Longtime partners Harry Kotowitz and Howard Klaus, the pair behind HK Organization, might not have the same kind of name recognition in the world of Dumbo real estate as that of, say, a Walentas.
But their success with Empire Stores, the 440,000-square-foot food, retail, and office complex on the Brooklyn waterfront, makes them a name to be reckoned with. And it belies a history that has found them pioneering development in the hottest neighborhoods in New York.
For most of their career, Kotowitz and Klaus worked in property management and development of affordable housing, often working with New York City to take on neglected buildings that seemed too mired in disrepair for salvation.
Many of the situations they found themselves in were a far cry from the gentrified elegance of their current projects, yet they helped set the stage for the pair’s success.
“I had to put a curtain between two apartments because [we had to install] the demising wall where the beams wound up landing, and it was the only way to do it,” said Klaus of one far-gone project. “There was no place to put these people, and we had to make sure they got along with each other for the six-month period of time that they lived with the curtain in between the two apartments.”
While the pair built their business taking on these sorts of challenges, their view of New York’s real estate landscape is different these days.
Kotowitz and Klaus had been active in residential development in Dumbo for over a decade when they were invited to a walk-through for the long-vacant property that would become Empire Stores at 53-83 Water Street. It was an especially memorable time as it was in November 2012, just two weeks after Hurricane Sandy.
“It was a vacant property with seven structures attached that had [once] been a coffee bean warehouse,” said Klaus of the property, which had been dormant for decades. “That’s what it was built and used for. People from Brooklyn Bridge Park were having a walkthrough — [they wanted to] renovate the building. A lot of developers showed up.”
Even discounting the five feet of water that flooded the property due to Sandy, developers saw they were in for a challenge.
“[It was built] in the 1800s,” said Kotowitz. “There was no plumbing, no electric. It was pure rubble. It had been abandoned for 60 years — exposed to the water, exposed to the elements, and just left [there].”
According to Klaus, the property had become notorious by then, as the city had twice issued RFPs for it that came to nothing. For Kotowitz and Klaus, their vast experience in renovating properties that had fallen into disrepair made them ideal for the project.
Dumbo “wasn’t a retail center or even an office center” at the time, said Klaus. “So we did the tour of the building and I went back to my office. I got a telephone call from an architect I had met years before, Jay Valgora. He said, ‘I saw your name on the roster, I want to come see you right away.’ He came down to my office, I think that day. He said he had been a successful architect on the last round, he had a good concept for this, and he wanted to do the project.”
Klaus, who said they competed with around 10 other developers for the rights to the project, formed what he calls the dream team. Valgora’s STUDIO V Architecture signed on as the architect, ultimately working in conjunction with S9 Architecture.
That HK Organization was awarded the $150 million project is especially impressive considering that their only retail experience was limited to ground-floor retail in their apartment buildings. This would be their first time building retail from the ground up.
They took on the project less as a fulfillment of any goal or plan, but more that, as Klaus puts it, they had “nothing to do” at the time.
Still, given their familiarity with Dumbo and with challenging developments in general, the project felt comfortable for them.
“This was in our backyard,” said Kotowitz. “We had done quite a few developments within a few blocks of here. As for what it needed, it needed vision. It needed the kind of renovation and reconstruction that we’re very familiar with, just on a grander scale. So for us, it seemed natural.”
Today, Empire Stores hosts outposts for West Elm (who also have their national headquarters in the building), J. Crew, and Feed. DUMBO House, a branch of Soho House, is there as well, as is the Time Out New York Market, a food hall that hosts Jacob’s Pickles — which serves the largest fried chicken sandwich this reporter has ever seen — Ice & Vice’s handcrafted ice cream, FELICE Pasta Bar, and the Clinton St. Baking Company. (In true blue hipster Brooklyn fashion, the Time Out Market doesn’t accept cash.)
The development of the food/beverage/retail mix came together somewhat naturally. At Empire Stores, HK rents out the retail to individual operators; the Time Out New York Market is completely run by Time Out.
“It turned out it was pretty straightforward,” said Kotowitz. “This is a destination location. West Elm was interested in this location early on. They occupy about 10,000 [square] feet on the ground floor. The ground floor is retail. Everything above is zoned office. So, it wasn’t like a program — it’s not like we created it. We understood it. It was just natural that the ground floor would be an amenity to the community and to tourists.”
The pair, along with partner Midtown Equities, spent a year and a half planning, designing, and securing approvals for Empire Stores — the project had to conform to the requirements of numerous city and state departments and agencies, including the State Historic Preservation Office and the Brooklyn Bridge Park Corporation — and the project then took over three years of construction, in part because of those same agencies.
“They had to approve every cut — every time you cut a hole,” said Klaus. “The demising walls are these [rubble-constructed], silvery kinds of walls. Every time you cut a hole, Landmarks wanted to see how big it was. You could only cut in certain places. They were concerned about that structure being ruined.”
Empire Stores opened in May 2017, with the Time Out market following last May.
“It’s a pretty great story, because they understood the value and potential of Empire Stores, and the building is such a smashing success because of their strong partnership and leadership,” said Regina Myer, President of the Downtown Brooklyn Partnership. “Vinegar Hill and Dumbo in the 2000s were not what they are now. But Howard and Harry’s focus on new neighborhoods, with ideas that can really bring back unutilized buildings to make the neighborhood stronger. It shows a concrete effort and focus that really differentiates them.”
They followed an unlikely path in reaching success at projects like Empire Stores.
Klaus, 65, was born and raised in Sheepshead Bay, Brooklyn and attended Wagner College in Staten Island for a few years. He didn’t graduate, but he was drawn to real estate early on, “dragging” his father and uncle to look at properties when he was 17 years old (alas, they decided not to buy).
He held several brief jobs in real estate, including renting apartments with a realtor then working in property management for a building owner. He soon opened his own real estate office, Church Realty, on Church Avenue in Brooklyn, doing brokerage, rentals, and property management.
Kotowitz, also 65, was born and raised in East Flatbush in Brooklyn, and earned an accounting degree at Brooklyn College. His father operated laundromats around the borough and his uncle owned real estate. Kotowitz, who had already realized he “didn’t want to go the CPA route,” developed an appreciation for running small businesses, and got a job as an assistant controller for a real estate company called R&C Management in Rosedale, Queens.
In the early 1980s, R&C hired Klaus to manage several properties, which is when the two future partners met. They hit it off, and in 1985, left their respective businesses to form one with several partners called the Kay Organization.
The company, which ran until 2003 when the pair branched out to launch HK Organization on their own, mostly dealt in property management.
“For the first 10 to 15 years, we built a property management company,” said Kotowitz. “We had some outside investor partners that were making money in the stock market in the mid-80s, and we purchased some properties. But in the majority, we were accumulating clients in the property management business, building that business up over the next 10 years until we were managing about 4,000 units.”
Working with various programs run by the city’s Department of Housing Preservation and Development, including the Vacant Building Program, helped them build their business, including renovating and building affordable housing throughout Brooklyn and the Bronx.
“We applied to various programs within HPD to manage, renovate, and eventually buy properties from the City of New York with sweat equity. Some programs had minimal equity requirements,” said Kotowitz. “The relationship with the City of New York and the realization that affordable housing was a serious component of New York City real estate gave us an opportunity to build a business and build some equity, as we did over the next 15 years.”
Through these programs, Kotowitz and Klaus were able to apply for federal low-income tax credits to purchase long-abandoned or neglected buildings, which they would then bring back to life.
“We would walk through these buildings, and there was nothing holding up the walls,” said Kotowitz. “You bid for these along with numerous other developers, and over the years we were successful in acquiring about a half-dozen of these properties. Most of them we still own.”
“[The tenants] were really mistreated for years, because management could not keep up with the repairs in these buildings,” said Klaus. “We came in like, we’re going to do the right thing, we’re going to take you from this horrible mess and make a brand-new apartment for you. They trusted us and went along with us and supported us at the city council to purchase the buildings.”
By around 2000, the pair remained involved in affordable housing, but started to move into market-rate housing, including condo development, as well.
As they had been active throughout distressed areas of Brooklyn for years, they were already entrenched in neighborhoods such as Vinegar Hill and Dumbo when they began to turn around.
Around 1999 to 2000, the pair bought two properties that would define the next stage of their business life — 192 Water Street in Dumbo, and 138 Broadway, the Smith Gray Building, in Williamsburg.
“The Smith Gray Building used to be Smith Gray Clothiers. It was a cast-iron building that I fell in love with,” said Klaus. “The wood floors were original, it was one hundred years old, and it was breathtaking. [We wanted to] create lofts there with cast-iron columns.”
“When we bought the building, we underwrote it is a rental,” said Kotowitz. “But that’s when condos were really catching on. So, we said, this is a unique product, and it could be profitable to do this as a condo. Smith Gray was, like, the second high-end development in Williamsburg. And that started a new business model for us.”
They proceeded to develop other condo projects in the years to come, including 79 Bridge Street in Dumbo-adjacent Vinegar Hill and 218 North 8th Street in Williamsburg, and also luxury rental projects such as 99 Gold Street in Vinegar Hill.
“We were the only ones other than the Walentas who were doing anything in Vinegar Hill and Dumbo at the time,” said Klaus. (While they sold 192 Water Street instead of developing it, it gave them their first in-roads into the area.)
In time, the pair acquired a reputation for knowing when a neighborhood was about to hit it big and developing there before anyone else.
“They have this uncanny knack for identifying properties before their marketplaces even have chatter about them,” said David J. Maundrell III, executive vice president at Corcoran New Development. Maundrell has worked with them as a rental agent for around 20 years. “Developing the Smith Gray Building was as pioneering as it gets. They extended the Williamsburg line down to Broadway, which nobody was doing at that time.”
“Among our peers, we’re known as innovators,” echoed Kotowitz. “The only real business mistake we made was not tripling down on some of these areas. We just kept moving.”
The pair are between projects at the moment. Around 13 years ago, they purchased a storage facility at 4-46 Hall Street, a 2-million-cubic-foot warehouse opposite Steiner Studios and the Brooklyn Navy Yard. This was another project where they purchased it before the surrounding area fully exploded into popularity. They kept their offices there for a time — they are now located upstairs from Empire Stores — and while the specifics are as yet undecided, they hope to turn it into their next major mixed-use project.
“Our view is long term, and Hall Street fulfills a lot of the aspects we look for in a future development,” said Kotowitz. “What we buy, we keep, in the majority. We’ve sold a few things. We own about 16 or 17 properties. We’re not big owners, but we own some very valuable pieces. We still own the affordable housing properties that we developed in the 1980s and into the 90s.”
After discussing their properties and experience, the pair are asked why they’re a successful team. Kotowitz’s answer is pretty quintessential — similar goals, personal camaraderie, and a willingness to work hard alongside each other over time to make success happen.
“The test of time is really the right answer,” he said. “I can’t tell you for sure why. We just got along. Howie’s got a very tough personality. I can be tough when I have to be. So I think we’re just a good balance. I’d say we have the same goals and same aspirations, and we’ve achieved many of those goals and aspirations through a lot of sweat equity.”